Reports
Actions for Planning, Industry and Environment 2020
Planning, Industry and Environment 2020
This report analyses the results of our audits of financial statements of the Planning, Industry and Environment cluster agencies for the year ended 30 June 2020. The table below summarises our key observations.
1. Financial reporting
Audit opinions |
There are 45 separate entities in the cluster. Unqualified audit opinions were issued for 38 cluster agencies' 30 June 2020 financial statements audits. Four financial statements audits are still ongoing, and three agencies were not subject to audit due to NSW Treasury reporting exemptions. |
Timeliness of financial reporting |
The majority of cluster agencies subject to statutory reporting deadlines met the revised timeline for submitting financial statements. Twenty‑four of the 26 cluster agencies required to submit early close financial statements met the revised timeframe. Due to issues identified during the audit, 13 financial statements audits were not completed and audit opinions not issued by the statutory deadline. |
Implementation of AASB 16 'Leases' |
Significant deficiencies were identified in Property NSW's lease data maintenance and lease calculations. Recommendation (partially repeat): Property NSW should:
Our audits of the cluster agencies identified there was a lack of thorough quality assurance over the accuracy of lease information provided by Property NSW. Recommendation: The Department and cluster agencies should:
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Unprocessed Aboriginal land claims continued to increase |
In 2019–20, the Department resolved an additional 468 Aboriginal land claims compared to the prior year. However, the total number of unprocessed Aboriginal land claims increased by 914 to 36,769 at 30 June 2020. The number of claims remaining unprocessed for more than ten years after lodgement increased by 10.9 per cent from last year. Until claims are resolved, there is an uncertainty over who is entitled to the land and the uses and activities that can be carried out on the land. Auditor-General's Reports to Parliament since 2007 have recommended action to address the increasing number of unprocessed claims. To date, the Department has not been able to resolve this issue. During 2020–21, a performance audit will assess the effectiveness and efficiency of the administration of Aboriginal land claims. |
Financial reporting of Crown land managers |
The Department will need to provide additional support and guidance to help Crown land managers (CLMs) meet their financial reporting obligations. Recommendation: The Department should:
During 2019–20, NSW Treasury established the reporting exemption criteria for the CLMs. Based on available information, the Department determined 31 CLMs would not meet the exemption criteria and therefore are required to prepare annual financial statements. |
2. Audit observations
Internal controls |
Six high‑risk issues were identified across the cluster in 2019–20:
One in three internal control issues identified and reported to management in 2019–20 were repeat issues. Recommendation: Management letter recommendations to address internal control weaknesses should be actioned promptly, with a focus on addressing high‑risk and repeat issues. |
Agencies response to recent emergencies |
The unprecedented bushfires and COVID‑19 pandemic presented challenges for the cluster. Agencies established taskforces or response teams to respond to these emergencies. With more staff working from home, agencies implemented protocols and procedures to manage risks associated with the remote working arrangements, and also needed to address certain technology issues. The Department is responsible for the new Planning System Acceleration Program, which aims to fast‑track planning assessments, boost the State's economy and keep people in jobs during COVID‑19 pandemic. Between April and October 2020, the Department announced and determined 101 major projects and planning proposals. |
Recognition of Crown land |
Crown land is an important asset of the State. Management and recognition of Crown land assets is weakened when there is confusion over who is responsible for a particular Crown land parcel. Auditor-General's Reports to Parliament since 2017 have recommended that the Department should ensure the database of Crown land is complete and accurate. Whilst the Department has commenced actions to improve the database, this remained an issue in 2019–20. Recommendation (repeat issue): The Department should prioritise action to ensure the Crown land database is complete and accurate. This allows state agencies and local councils to be better informed about the Crown land they control. |
Implementation of Machinery of Government (MoG) changes |
Since its creation on 1 July 2019, the Department has largely established its governance arrangements, including setting up the Audit and Risk Committee and internal audit function for the Department and relevant cluster agencies. The Department still operated three main financial reporting systems in 2019–20, and has commenced the process to consolidate some of the systems. The recent Regional NSW MoG change led to the transfer of $446 million net assets and $284 million 2019–20 budget from the Department to the newly created Department of Regional NSW on 2 April 2020. |
This report provides parliament and other users of the Planning, Industry and Environment cluster agencies’ financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations
- the impact of emergencies and the pandemic.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision making are enhanced when financial reporting is accurate and timely.
The COVID‑19 Legislation Amendment (Emergency Measures–Treasurer) Act 2020 amended legislation administered by the Treasurer to implement further emergency measures as a result of the COVID‑19 pandemic. These amendments:
- allowed the Treasurer to authorise payments from the Consolidated fund until the enactment of the 2020–21 budget – impacting the going concern assessments of cluster agencies
- revised budgetary, financial and annual reporting time frames – impacting the timeliness of financial reporting
- exempted certain statutory bodies and departments from preparing financial statements.
This chapter outlines our audit observations related to the financial reporting of agencies in the Planning, Industry and Environment cluster for 2020, including any financial implications from the recent emergency events.
Section highlights
The Department has not yet developed a statutory reporting framework for Crown land managers and will need to provide additional resources to help Crown land managers meet their financial reporting obligations. |
Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision making.
This chapter outlines our:
- observations and insights from our financial statements audits of agencies in the Planning, Industry and Environment cluster
- assessment of how well cluster agencies adapted their systems, policies and procedures, and governance arrangements in response to recent emergencies
- review of how the cluster agencies managed the increased risks associated with new programs aimed at stemming the spread of COVID-19 and stimulating the economy.
Cluster agencies experienced a range of control and governance related issues in recent years. An increased number of high risk issues and greater proportion of repeat issues were identified as part of our audits. It is important for cluster agencies to promptly address these issues.
Section highlights
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Actions for Waste levy and grants for waste infrastructure
Waste levy and grants for waste infrastructure
The Auditor-General for New South Wales, Margaret Crawford, released a report today that examined the effectiveness of the waste levy and grants for waste infrastructure in minimising the amount of waste sent to landfill and increasing recycling rates.
The audit found that the waste levy has a positive impact on diverting waste from landfill. However, while the levy rates increase each year in line with the consumer price index, the EPA has not conducted a review since 2009 to confirm whether they are set at the optimal level. The audit also found that there were no objective and transparent criteria for which local government areas should pay the levy, and the list of levied local government areas has not been reviewed since 2014.
Grant funding programs for waste infrastructure administered by the EPA and the Environmental Trust have supported increases in recycling capacity. However, these grant programs are not guided by a clear strategy for investment in waste infrastructure.
The Auditor-General made six recommendations aimed at ensuring the waste levy is as effective as possible at meeting its objectives and ensuring funding for waste infrastructure is contributing effectively to recycling and waste diversion targets.
Overall, waste generation in New South Wales (NSW) is increasing. This leads to an increasing need to manage waste in ways that reduce the environmental impact of waste and promote the efficient use of resources. In 2014, the NSW Government set targets relating to recycling rates and diversion of waste from landfill, to be achieved by 2021–22. The NSW Waste and Resource Recovery (WARR) Strategy 2014–21 identifies the waste levy, a strong compliance regime, and investment in recycling infrastructure as key tools for achieving these waste targets.
This audit assessed the effectiveness of the NSW Government in minimising waste sent to landfill and increasing recycling rates. The audit focused on the waste levy, which is paid by waste facility operators when waste is sent to landfill, and grant programs that fund infrastructure for waste reuse and recycling.
The waste levy is regulated by the Environment Protection Authority (EPA) and is generally paid when waste is disposed in landfill. The waste levy rates are set by the NSW Government and prescribed in the Protection of Environment Operations (Waste) Regulation 2014. As part of its broader role in reviewing the regulatory framework for managing waste and recycling, the EPA can provide advice to the government on the operation of the waste levy.
The purpose of the waste levy is to act as an incentive for waste generators to reduce, re-use or recycle waste by increasing the cost of sending waste to landfill. In 2019–20, around $750 million was collected through the waste levy in NSW. The government spends approximately one third of the revenue raised through the waste levy on waste and environmental programs.
One of the waste programs funded through the one third allocation of the waste levy is Waste Less, Recycle More (WLRM). This initiative funds smaller grant programs that focus on specific aspects of waste management. This audit focused on five grant programs that fund projects that provide new or enhanced waste infrastructure such as recycling facilities. Four of these programs were administered by the Environmental Trust and one by the EPA.
Conclusion
The waste levy has a positive impact on diverting waste from landfill. However, aspects of the EPA's administration of the waste levy could be improved, including the frequency of its modelling of the waste levy impact and coverage, and the timeliness of reporting. Grant funding programs have supported increases in recycling capacity but are not guided by a clear strategy for investment in waste infrastructure which would help effectively target them to where waste infrastructure is most needed. Data published by the EPA indicates that the NSW Government is on track to meet the recycling target for construction and demolition waste, but recycling targets for municipal solid waste and commercial and industrial waste are unlikely to be met.
Waste levy
The waste levy rate, including a schedule of annual increases to 2016, was set by the NSW Government in 2009. Since 2016, the waste levy rate has increased in line with the consumer price index (CPI). The EPA has not conducted recent modelling to test whether the waste levy is set at the optimal level to achieve its objectives. The waste levy operation was last reviewed in 2012, although some specific aspects of the waste levy have been reviewed more recently, including reviews of waste levy rates for two types of waste. The waste levy is applied at different rates across the state. Decisions about which local government areas (LGAs) are subject to the levy, and which rate each LGA pays, were made in 2009 and potential changes were considered but not implemented in 2014. Currently, there are no objective and transparent criteria for determining which LGAs pay the levy. The EPA collects waste data from waste operators. This data has improved since 2015, but published data is at least one year out of date which limits its usefulness to stakeholders when making decisions relating to waste management.
Grants for waste infrastructure
All state funding for new and enhanced waste infrastructure in NSW is administered through grants to councils and commercial waste operators. The government's Waste and Resource Recovery (WARR) Strategy 2014–21 includes few priorities for waste infrastructure and there is no other waste infrastructure strategy in place to guide investment. The absence of a formal strategy to guide infrastructure investment in NSW limits the ability of the State Government to develop a shared understanding between planners, councils and the waste industry about waste infrastructure requirements and priorities. The Department of Planning, Industry and Environment is currently developing a 20-year waste strategy and there is an opportunity for the government to take a more direct role in planning the type, location and timing of waste infrastructure needed in NSW.
The grants administration procedures used for the grant programs reviewed in this audit were well designed. However, we identified some gaps in risk management, record-keeping and consistency of information provided to applicants and assessment teams. In four of the five programs we examined, there was no direct alignment between program objectives and the NSW Government's overall waste targets.
Achievement of the 2014–21 state targets for waste and resource recovery (WARR targets) is reliant in part on the availability of infrastructure that supports waste diversion and recycling. The state WARR targets dependent on waste infrastructure are:
- Increase recycling rates to 70 per cent for municipal solid waste and commercial and industrial waste, and 80 per cent for construction and demolition waste.
- Increase waste diverted from landfill to 75 per cent.
A further target — manage problem waste better by establishing or upgrading 86 drop-off facilities or services for managing household problem wastes state-wide — is dependent on accessible community waste drop-off facilities across NSW.
Exhibit 7 identifies the five grant programs that provide funding for new or enhanced waste infrastructure to increase capacity for reuse or recycling of waste. All five of these programs were examined in the audit.
In addition to the grant programs shown in Exhibit 7, other programs provide funding for infrastructure, but at a smaller scale. Examples of these include:
- Bin Trim which provides rebates to small businesses for small scale recycling equipment such as cardboard and soft plastic balers.
- Litter grants which provide funding for litter bins.
- Weighbridges grants for installation of a weighbridge at waste facilities.
- Landfill consolidation and environmental improvement grants for rural councils to replace old landfills with transfer stations or to improve the infrastructure at landfill sites.
Appendix one – Responses from audited agencies
Appendix two – About the audit
Appendix three – Performance auditing
Copyright notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Parliamentary reference - Report number #343 - released 26 November 2020
Actions for Governance and internal controls over local infrastructure contributions
Governance and internal controls over local infrastructure contributions
The Auditor-General for New South Wales, Margaret Crawford, released a report today on how well four councils managed their local infrastructure contributions during the 2017-18 and 2018-19 financial years.
Local infrastructure contributions, also known as developer contributions, are collected from developers to pay for local infrastructure such as drainage, local roads, open space and community facilities. Controls over local infrastructure contributions help to ensure that all contributions owed are collected, funds are spent as intended, and any contributions paid in the form of works-in-kind or dedicated land are correctly valued.
The audit found that Blacktown City Council and City of Sydney Council provided effective governance over their local infrastructure contributions whereas Central Coast and Liverpool City Councils’ governance arrangements require improvement.
The audit found that three councils had spent local infrastructure contributions in accordance with approved contributions plans. Central Coast Council and the former Gosford City Council had spent $13.2 million on administration costs in breach of the Environmental Planning and Assessment Act 1979. These funds were repaid into the council’s local infrastructure fund during the course of the audit.
The Auditor-General made a number of recommendations for each council relating to improving controls over contributions and increasing transparency.
This audit examined the effectiveness of governance and internal controls over local infrastructure contributions, also known as developer contributions, held by four councils during the 2017–18 and 2018–19 financial years.
This performance audit was conducted with reference to the legislative and regulatory planning framework that was in place during that period.
Our work for this performance audit was completed at the end of March 2020 when we issued the final report to the four audited councils and the Department of Planning, Industry and Environment. We received their respective formal responses to the report’s recommendations during April and May 2020.
Concurrently to this audit, we sought Crown Solicitor’s advice (the ‘Advice’) regarding the use of local infrastructure contributions collected by local councils under the Environmental Planning and Assessment Act 1979 (‘the EPA Act’) for our financial audit work. The Advice clarified the applicable legislative requirements with reference to the application, investment and pooling of local infrastructure contributions. The Advice is included in Appendix 2 of this report. The Advice has not impacted on the findings and recommendations of this report.
Councils collect Local Infrastructure Contributions (LICs) from developers under the Environmental Planning and Assessment Act (1979), the Local Government Act (1993) and the City of Sydney Act (2000) (EP&A Act, LG Act and City of Sydney Act) to fund infrastructure required to service and support new development. At 30 June 2018, councils across NSW collectively held more than $3.0 billion in LICs collected from developers. Just over $1.37 billion in total was held by ten councils. Councils collecting LICs must prepare a contributions plan, which outlines how LICs will be calculated and apportioned across different types of infrastructure. Councils that deliver water and sewer services prepare a development servicing plan (DSP) which allows them to collect contributions for water and sewer infrastructure.
Development timeframes are such that there is often several years between when LICs are collected and the infrastructure is required. Good governance and internal controls are needed over these funds to ensure they are available when needed and spent appropriately.
This audit assessed the effectiveness of governance and internal controls over LICs collected by four councils during the 2017–18 and 2018–19 financial years: Blacktown City Council, Central Coast Council, City of Sydney Council and Liverpool City Council. As at June 2018 these councils held the four highest LIC balances, each in excess of $140 million.
Audit Conclusion
Three of the four councils audited were currently compliant with legislation, regulations and Ministerial Directions regarding LICs. All had gaps in governance and controls over LICs which limited effective oversight.
Three of the councils included in the audit complied with legislation, regulations and Ministerial Directions relating to LICs. Central Coast Council breached the EP&A Act between 2001 and 2019 when it used LICs for administration costs. These funds were repaid in late 2019.
While controls over the receipt and expenditure of contributions funds were largely in place at all councils, there were some exceptions relating to valuing work and land delivered in lieu of cash. Three councils do not provide probity guidance in policies relating to LICs delivered through works-in-kind. Three of the councils had contributions plans that were more than five years old.
Staff at all four councils are knowledgeable about LICs but not all councils keep procedures up to date. Three councils' governance frameworks operate effectively with senior officers from across the council involved in decisions about spending LICs, entering into voluntary planning agreements (VPAs) and reviewing contributions plans.
Transparency over key information relating to LICs is important for senior management so they can make informed decisions, and for the community who pay LICs and expect infrastructure to be provided. During the period of the audit, none of the councils included in the audit provided sufficient information to senior management or their councillors about the projected financial status of contributions plans. This information would be valuable when making broader strategic and financial decisions. Information about LIC levies and intended infrastructure is available to the community but not always easy to find.
A strong governance framework is important at each council to ensure that the funds are managed well, available when needed and spent as intended. The audit examined the following features of each council's governance framework as they apply to LICs:
- decision-making by councillors and council officers relating to LICs
- monitoring delivery of contributions plans and DSPs including:
- reviewing assumptions underlying the plans
- monitoring projected status of plans.
Internal controls over LICs are important to promote accountability, prevent fraud and deliver infrastructure to the required standard at the best possible price. If financial controls are weak or are not implemented well, there is a risk that LICs are misspent or that councils pay too much for infrastructure.
Not all councils' internal controls adequately addressed risks associated with the administration of LICs
The audit examined a number of internal controls that manage risks related to LICs. These included:
- financial controls over receipt and expenditure of LIC funds
- management of conflicts-of-interest when dealing with developers
- independent valuations of works-in-kind and dedicated land
- ensuring delivery and quality of works-in-kind, and obtaining security from developers in the event of non-delivery or poor quality work
- management of variations to VPAs and works-in-kind agreements.
We reviewed controls included in policies and procedures and then checked samples of work to ensure that controls were implemented. We found variation in the controls that councils implemented, and some weaknesses in controls. It is a matter for each council to assess their financial risk and develop internal controls that support the collection, management, and expenditure of LICs. However, councils must be able to assure their communities and developers that they are doing everything possible to collect all LICs owing and that work conducted by developers in lieu of cash payments is properly valued and carried out to the required standard.
Further information about audit findings in relation to internal controls for each council are included in chapters five to eight. The exhibit below demonstrates variation in several controls implemented in the audited councils.
In a 2018 report, the Independent Commission Against Corruption noted that 'the appetite for transparency is expanding in both the public and private sectors'.
The Practice Note and S64 Guidance refer to transparency, including the importance of transparency over:
- calculation and apportionment of LICs
- funding of infrastructure, including where and when infrastructure is delivered
- arrangements made with developers through VPAs.
The LIC system is largely transparent for community members who know where to look
Contributions plans and DSPs are public documents, exhibited to the public before being adopted by council. Councils included in the audit publish their contributions plans and DSPs on their websites and meet statutory requirements with regard to reporting and accessibility of information.
However, other public information relating to the LIC system is fragmented across different websites and reports and varies in detail across councils.
Blacktown City Council | Central Coast Council | City of Sydney Council | Liverpool City Council | |
---|---|---|---|---|
Financial details about contributions collected and spent | Financial statements | Financial statements | Financial statements | Financial statements |
Implementation plans for spending LICs | Contribution plans | S64 implementation plans in DSPs. S7.11 & S7.12 implementation plans developed annually within capital works plan | Contribution plans | Developed annually within capital works plan |
Capital works underway or completed, funded by LICs | Capital works plan and annual report | Not published | Not published | Capital works plan |
The Practice Note states that councils are accountable for providing the infrastructure for which contributions are collected. Demonstrating that infrastructure has been provided is difficult with fragmented information. As an example of transparent reporting, Blacktown City Council's 2018–19 annual report includes information about infrastructure that has been delivered for every contributions plan, providing transparency over how LICs have been spent.
Use of LICs collected under VPAs is not always transparent
Contributions collected under VPAs are not required to demonstrate the same relationship to a development as LICs collected under section 7.11 of the EP&A Act. VPAs are often negotiated because a developer requests a change to a planning instrument, and it is important that these arrangements, and their outcomes, are transparent to the community.
The EP&A Regulation includes mechanisms to ensure that VPAs are partially transparent. VPAs are exhibited to the public and approved by the elected council. Councils must maintain a VPA Register and make the VPA Deeds of Agreement available on request. However, there is no obligation on council to report on the outcomes or delivery of developers' obligations under VPAs. The four audited councils vary in transparency and accessibility of information available about VPAs.
Blacktown City Council | Central Coast Council | City of Sydney Council | Liverpool City Council | |
---|---|---|---|---|
VPA Register | Council website and annual report | Annual report | Annual report | Council website and annual report |
VPA Deeds of Agreement | Council website | Available on request | Available on request | Council website |
Intended use of LICs collected under VPAs | In Deeds of Agreement | In Deeds of Agreement | In VPA Register and most Deeds of Agreement | In VPA Register and most Deeds of Agreement |
Completion of work funded by cash collected under VPAs | Not published | Not published | Not published | Not published |
Delivery of works-in-kind or land negotiated under VPAs | Not published | Not published | In VPA Register | Not published |
The Practice Note suggests that councils incorporate the intended use of LICs collected under VPAs in the Deed of Agreement, but there is no guidance relating to transparency over where and when funds have actually been spent. There is merit in councils providing greater transparency over public benefits delivered through VPAs to give communities confidence in VPAs as a planning tool.
Credit arrangements with developers are not always well documented or monitored
When levying LICs, section 7.11(6) of the EP&A Act requires councils to take into account land, money, or works-in-kind that the developer has contributed on other development sites over and above their LIC obligations. This section of the EP&A Act allows a developer to offset a LIC owed on one site against land or works contributed on another. This leads to some developers carrying 'credits' for work delivered to councils, to be paid back by reduced LICs on a future development. Blacktown City Council and Central Coast Council allow developers to carry credits. Liverpool City Council and City of Sydney Council do not permit credits and instead pay the developers for any additional work undertaken.
Councils should formally document credit arrangements and have a robust process to validate and keep track of credit balances and report on them. Central Coast Council does not keep good track of credit arrangements and neither Blacktown City Council or Central Coast Council aggregate or report on outstanding credit balances.
Blacktown City Council manages the largest LIC fund in NSW and negotiates more VPAs than any other council. Overall, Blacktown City Council demonstrates effective governance over the LIC funds but there is scope for improved oversight of the projected financial status of contributions plans and credit arrangements with developers. Blacktown City Council also needs to update its operating procedures relating to LICs and improve security over key information.
Blacktown City Council is managing areas with high growth. There is a risk that Blacktown City Council will be unable to collect sufficient LICs to fund the infrastructure required to support that growth. However, Blacktown City Council does not assess and report to senior management or its Audit, Risk and Improvement Committee about the projected financial status of contributions plans.
Blacktown City Council has policies in place to guide the management of LICs although management of credit arrangements with developers requires greater oversight. Policies relating to works-in-kind agreements provide no guidance about probity in negotiations with developers and valuations of works-in-kind are not independent as they are paid for by the developer. Blacktown City Council's S7.11 committee structure could act as a model for other councils. Blacktown City Council is spending LICs according to its contributions plans. Staff managing LICs demonstrate good knowledge of the regulatory environment. However, a number of administrative processes need attention such as outdated procedures, lack of security over key spreadsheets, and inappropriate retention of sensitive personal data.
Recommendations
By December 2020, Blacktown City Council should:
- regularly report to senior management on the projected financial status of contributions plans
- update council's works-in-kind policy to address probity risks during negotiations with developers
- mitigate risks associated with lack of independence in valuations of works-in-kind
- improve public reporting about expenditure of cash collected under VPAs
- improve management oversight of credit arrangements with developers
- update procedures for managing LICs
- implement security measures over critical or personal information and spreadsheets.
Central Coast Council's governance and internal controls over LICs were not fully effective. Between 2001 and 2019, more than $13.0 million in LICs was misspent on administration costs in breach of the EP&A Act. There is scope for improved oversight of the projected financial status of contributions plans and credit arrangements with developers. Policies and procedures from the two former councils are not aligned.
In May 2016, the newly amalgamated Central Coast Council inherited 53 contributions plans from the former Gosford City and Wyong Shire Councils. Managing this number of contributions plans fragments the available funds and increases complexity. Central Coast Council is currently working on consolidating these plans. Between June 2016 and June 2019, its LIC balance doubled from $90.0 million to $196 million. Central Coast Council does not assess and report to senior management or its Audit, Risk and Improvement Committee about the projected financial status of contributions plans. Central Coast Council has a LIC committee but it has no formal charter and senior officers do not regularly attend meetings. This limits the committee's effectiveness as a decision-making body. A draft policy relating to works-in-kind agreements provide no guidance about probity in negotiations with developers. Valuations of works-in-kind and land dedications are not independent as they are paid for by the developer.
Central Coast Council has adjusted its accounts in 2018–19 by $13.2 million to repay the LIC fund for administration expenses that were not provided for in 40 contributions plans.
Recommendations
By June 2020, Central Coast Council should:
1. obtain independent validation of the adjustment made to the restricted asset accounts and general fund to repay LICs spent on administration, and adjustments made to each infrastructure category within the contributions plans
2. publish current contributions plans from the former Gosford City Council on the Central Coast Council website.
By December 2020, Central Coast Council should:
3. regularly report to senior management on the projected financial status of contributions plans
4. increase transparency of information available to the public about LIC works planned and underway, including intended use of contributions collected under VPAs
5. consolidate existing plans, ensuring the new contributions plans includes a regular review cycle
6. develop a formal charter for the developer contributions committee and increase the seniority of membership
7. complete and adopt council's works-in-kind policy currently under development, ensuring it addresses probity risks during negotiations with developers
8. mitigate risks associated with lack of independence in valuations of works-in-kind and dedicated land
9. improve public reporting about expenditure of cash collected under VPAs
10. improve management oversight of credit arrangements with developers
11. implement security measures to ensure the integrity of key spreadsheets used to manage LICs
12. align policies and procedures relating to LICs across the amalgamated council including developing policies and procedures for the management of S64 LICs
13. update council's VPA policy to address increased or indexed bank guarantees to accommodate cost increases.
City of Sydney Council manages a complex development environment across the Sydney CBD and inner suburbs. Overall, governance and internal controls over LICs are effective although there is scope for improved oversight of the projected financial status of contributions plans.
City of Sydney Council maintains a large balance of LICs, although not excessive relative to the annual level of LIC expenditure. Unspent contributions are largely associated with open space infrastructure that cannot be delivered until suitable land is available. Thirty per cent of cash contributions are collected under VPAs and there is limited transparency over how these funds are spent. City of Sydney Council does not assess and report to management or its Audit, Risk and Compliance Committee about the projected financial status of contributions plans.
In 2017–18 and 2018–19, LICs were spent in accordance with the corresponding contributions plans. City of Sydney Council staff are knowledgeable about the regulatory environment and are supported by up-to-date policies and procedures.
Recommendations
By December 2020, City of Sydney Council should:
- regularly report to senior management on the projected financial status of contributions plans
- improve public reporting about expenditure of cash collected under VPAs
- periodically review the risk of unpaid LICs associated with complying development certificates and assess whether additional controls are required
- implement security measures to ensure the integrity of key spreadsheets used to manage LICs.
During the audit period 2017–18 and 2018–19, Liverpool City Council did not have effective governance and internal controls over LICs. Liverpool City Council is addressing deficiencies and risks identified through an internal audit published in December 2018 although further work is required. There is scope for improved oversight of the projected financial status of contributions plans.
In the two years to 30 June 2019, the balance of unspent LICs increased by more than 60 per cent against a relatively low pattern of expenditure. Prior to an internal audit completed in late 2018, there was no regular reporting on the status of LICs and a lack of transparency when prioritising the expenditure of LIC funds. During 2019, and following the internal audit, Liverpool City Council engaged additional skilled resources to improve focus and accountability for LICs. A LIC committee has been established to manage contributions plans and support business units to initiate relevant infrastructure projects, although it is too early to assess whether this committee is operating effectively. From February 2019, Liverpool City Council commenced monthly reporting to its Chief Executive Officer (CEO) about the point-in-time status of LIC funds, and to its Audit, Risk and Improvement Committee about risks associated with LICs and the implementation of internal audit recommendations. There is limited reporting to senior management about the projected financial status of some contributions plans. Our audit found no evidence of misuse of funds during the audited period. Methods for valuing work and land are not aligned with policies and procedures and are implemented inconsistently. In addition, valuations of works-in-kind and land dedications are not independent as they are paid for by the developer. The policy relating to works-in-kind provides no guidance about managing probity risks when negotiating with developers.
Recommendations
By December 2020, Liverpool City Council should:
- regularly report to senior management on the projected financial status of contributions plans
- update council's policies and procedures to provide consistent guidance about how works and land offered by developers should be valued
- update council's Works-in-Kind and Land Acquisition Policy to address probity risks during negotiations with developers
- improve public reporting about expenditure of cash collected under VPAs
- mitigate risks associated with lack of independence in valuations of works-in-kind and dedicated land
- implement security measures over critical or private information.
Appendix one – Responses from councils and the Department of Planning, Industry and Environment
Appendix two – Advice from the Crown Solicitor
Appendix three – About the audit
Appendix four – Performance auditing
Copyright notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Parliamentary reference - Report number #339 - released 17 August 2020
Actions for Planning and Environment 2017
Planning and Environment 2017
The following report highlights results of financial audits of agencies in the Planning and Environment cluster. The report focuses on key observations and findings from the most recent audits of these agencies.
The audits were completed for most agencies in the cluster and unqualified audit opinions issued. Issues identified during the financial statement audits of seven small agencies delayed their finalisation beyond the statutory deadline, and six of these remain incomplete. Apart from these small agencies, the quality of financial reporting across the cluster remained at a high standard.
This report provides Parliament and others with the audit results, observations and recommendations for Planning and Environment cluster agencies. The report has been structured into two chapters focussing on financial reporting and controls and service delivery.
The Planning and Environment cluster plays a role in ensuring each community across New South Wales receives the services and infrastructure it needs.
This chapter outlines our audit observations and recommendations related to financial reporting and controls of Planning and Environment cluster agencies for 2016–17.
Observation | Conclusion or recommendation |
2.1 Quality of financial reporting |
|
Unqualified audit opinions were issued for 39 of the 45 cluster agencies' financial statements. |
Issues identified during the financial statement audits of seven smaller agencies delayed their completion. Six audits remain incomplete at the date of this report. Apart from these seven small agency audits, the quality of financial reporting across the cluster remained at a high standard. |
2.2 Timeliness of financial reporting |
|
Seven agencies' financial statement audits were not completed by the statutory deadline with six audits incomplete at the date of this report. |
Issues identified during the financial statement audits of seven smaller agencies delayed their finalisation beyond the statutory deadline. These agencies would benefit from performing additional early close procedures in future reporting periods. |
2.3 Financial and sustainability analysis |
|
Water and Electricity utility agencies continue to operate with low liquidity ratios. |
A liquidity ratio below one is an indicator that an entity may not be able to pay its debts as and when they fall due. Whilst liquidity ratios were below one, utility agencies demonstrated they can continue to support ongoing operations due to:
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2.5 Internal controls |
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One in six internal control weaknesses reported in 2016–17 were repeat issues. |
Delays in implementing audit recommendations can prolong the risk of fraud and error. Recommendation (repeat issue): anagement letter recommendations to address internal control weaknesses should be actioned promptly, with a focus on addressing repeat issues. |
Nine of these internal control weaknesses related to the creation, modification, deletion and review of user access to financial systems. |
These control weaknesses may compromise the integrity and security of financial data. Recommendation (repeat issue): Management of user administration over financial systems should be strengthened to prevent inappropriate access to financial information. |
This chapter outlines our audit observations, conclusions and recommendations relating to service delivery for 2016–17.
Observation | Conclusion or recommendation |
3.1 Premier's and State priorities |
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The Planning and Environment cluster is responsible for delivering five Premier's and State priorities. |
One priority target was achieved in 2016–17, two targets are on track to be achieved and progress towards one target slowed. Progress against one target cannot be determined. |
3.2 Planning |
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Housing Completion |
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There were 63,506 housing completions in 2016–17. This was 4.1 per cent above the Premier’s priority target of delivering 61,000 housing completions per year. |
The Australian Bureau of Statistics data shows the housing completions target was achieved in 2016–17. |
Housing supply |
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The number of approvals for new houses in 2016–17 was 72,472 against the State priority target of more than 50,000 approvals per year. |
The Australian Bureau of Statistics data indicates the housing approvals target was achieved in 2016–17. |
Major project assessment |
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State significant developments are not clearly defined for the purposes of reporting against the State priority target. | The Department of Planning and Environment will clarify with the Department of Premier and Cabinet which developments are captured by the State priority target. |
The Department of Planning and Environment’s data shows the time taken to assess complex State significant developments increased by 16 per cent in 2016–17 while the time taken to assess less complex developments reduced by 20 per cent. | The Department of Planning and Environment considers it is on track to meet the State priority target of halving the time taken to assess State significant developments, despite uncertainty over the target measure. |
Housing acceleration fund |
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Program business cases were not developed for projects in Housing Acceleration Fund Rounds 1 to 4. The Department advised a program business case will be developed for Housing Acceleration Fund Round 5 projects. |
A program business case is necessary to ensure related projects are evaluated, managed and coordinated effectively. |
A benefit realisation review process has not yet been approved for Housing Acceleration Fund projects. The Department of Planning and Environment advised it is developing a benefit realisation review process. |
A benefit realisation review process is necessary to determine whether funded projects achieved intended outcomes. |
Greater Sydney Commission |
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The Greater Sydney Commission forecasts a further 725,000 dwellings in the greater Sydney region will be required up to 2036 to meet housing demand. | In response to population growth, the Commission has set a five-year housing supply target of 189,100 houses across the five Greater Sydney Commission districts. |
ePlanning system |
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The Department of Planning and Environment did not perform a benefit realisation review for phase one of the ePlanning project. It has committed to performing a benefit realisation review after completion of phase two in 2018. | It cannot be determined if phase one of the project delivered expected outcomes as a benefit realisation review was not performed. |
3.3. Environment and Heritage |
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Litter volume in New South Wales was 6.6 litres per 1,000 square metres in 2016–17, an increase of 16 per cent from the prior year. This is above the Premier's priority litter volume target of 4.2 litres per 1,000 square metres by 2020. | The Environment Protection Authority's data indicates the progress towards the target of reducing the volume of litter by 40 per cent by 2020 has slowed. |
The NSW Government plans to invest $240 million to facilitate strategic biodiversity conservation on private land. | Performance measures have not yet been developed for the private land conservation program. |
3.4 Water |
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IPART reduced water usage charges for most Sydney Water Corporation customers in 2016–17. | Water usage prices in New South Wales compare favourably to larger water utilities in other jurisdictions. |
Hunter Water Corporation's water recycling and water conservation performance has been stable over recent years. The volume of Sydney Water Corporation’s recycled water reduced by 12 per cent in 2016–17 compared to the previous year. |
Sydney Water Corporation experienced reduced industry demand for recycled water. Several large industrial customers relocated away from Sydney. |
3.5 Arts and culture |
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A State priority target is to increase overall attendance at cultural venues and events in New South Wales by 15 per cent from 2014–15 levels by 2019. | The Department of Planning and Environment's data indicates overall attendance increased by 16 per cent in 2015–16, although attendance fluctuated across individual venues and events. This indicates progress towards achieving the overall target by 2019. |
Actions for Agency compliance with NSW Government travel policies
Agency compliance with NSW Government travel policies
Overall, agencies materially complied with NSW Government travel policies.
However, the Auditor-General found some agencies:
- did not always book official travel through the approved supplier
- had weaknesses in their travel approval processes
- had travel policies that were inconsistent with the NSW Government policy
- did not adequately manage their travel records.
We asked the 15 participating agencies to complete a self assessment of the processes they have implemented to comply with the new policy. The key observations are summarised below.
Actions for State Finances 2017
State Finances 2017
Total State Sector Accounts received an unqualified audit opinion for the fifth consecutive year.
There was a $5.7 billion State budget surplus and continued investment in new infrastructure, in part funded by the long-term leases of Ausgrid and Endeavour Energy assets. This report also comments on key accounting matters, including the correction of some previously reported balances and the first time reporting of combined Cabinet members’ compensation in the Total State Sector Accounts.
Pursuant to the Public Finance and Audit Act 1983, I present my Report on State Finances 2017.
You will note that the format of this report has changed from previous years.
The intent of this change is to draw attention to the key matters that have been the focus of our audit and highlight significant factors that have contributed to the outcome.
First, it is pleasing to report once again that I issued a clear audit opinion on the State’s consolidated financial statements. This outcome demonstrates the Government’s continued focus on the quality of financial reporting across the NSW public sector.
High quality financial management and reporting are crucial to properly inform the public and build community confidence in our system of government.
The Treasury’s Financial Management Transformation program also aims to improve financial governance, budgeting and reporting arrangements across the sector. My Office is working collaboratively with The Treasury on reforms to reduce the burden of reporting, without weakening established safeguards.
The reforms should include measures to provide independent assurance of the budget process, of outcome reporting by agencies, and the power to “follow the dollar” given the increasing use of non-government organisations to deliver Government programs.
This Report also highlights another year of strong financial performance. The State’s budget result was a $5.7 billion surplus, and investment in new infrastructure has continued, in part funded by the long-term leases of Ausgrid and Endeavour Energy assets.
Finally, could I take this opportunity to thank the staff of The Treasury for the way they approached this audit. Our partnership is critical to ensuring NSW is an exemplar of quality financial management and reporting.
Margaret Crawford
24 October 2017
A clear audit opinion on the State’s consolidated financial statements was issued.
Timely and accurate financial reporting is essential for informed decision making, effective management of public funds and enhancing public accountability.
This year’s clear audit opinion reflects the Government’s continued efforts to improve the quality of financial reporting across the NSW public sector.
Since the introduction of ‘early close procedures’ in 2011-12, the number of significant errors in financial statements of agencies has generally fallen largely due to identifying and resolving complex accounting issues early. Agencies’ 2016-17 financial statements submitted for audit contained nine errors exceeding $20 million. All errors were subsequently corrected in the individual agencies financial statements.
Agencies should continue to respond to key accounting issues as soon as they are identified. Where issues are identified, accounting position papers should be prepared for consideration by the Audit Office, their Audit and Risk Committee members, and when relevant, The Treasury.
The State addressed the following key accounting matters during 2016-17.
The State recognised rail tunnels and earthworks valued at $8.5 billion.
Some rail tunnels and earthworks have never been valued by the State. These include the City Circle, the country rail network and other tunnels and earthworks built before the year 2000. Some of these tunnels and earthworks date back to the early 1900s.
For many years, the State did not account for these assets as they believed that their value could not be reliably measured. This year an independent valuer was engaged to perform a comprehensive valuation. The methodology used demonstrated
that the assets could have been reflected in the financial statements earlier.
The State recorded an additional $8.5 billion to correct the value of infrastructure assets at 1 July 2016.
Cabinet member’s compensation and related party transactions were reviewed.
Due to changes in Accounting Standards, the State had to consider 'related party information' in the financial statements. Previously this only applied to for-profit entities.
This year, requirements to report related party information extended to members of Cabinet, considered to be “key management personnel” of the State, as defined by Accounting Standards.
The Treasury implemented a process to assess and report Cabinet member’s compensation, and transactions between Cabinet members and/or their close family members, and government agencies.
Collectively, Cabinet members’ remuneration was $8.8 million, which was mainly salaries and allowances, and $3.5 million of non-monetary benefits such as security and drivers. The Treasury determined there were no other specific “related party” transactions or balances that required disclosure in the State’s financial statements.
Information system limitations continue at TAFE NSW.
TAFE NSW has experienced ongoing issues with its student administration system.
TAFE NSW has again implemented additional processes to verify the accuracy and completeness of revenue from sales of goods and services.
TAFE NSW expects to spend up to $89 million on a new information system to address these issues. Modules of the new student enrolment system are expected to be in place for the 2018 enrolment period.
Restatements relating to the General Government Sector's investment in the commercial sector.
The State corrected two previously reported balances relating to the General Government Sector’s investment in the commercial sector.
Accounting Standards require the General Government Sector to effectively store gains or losses related to its investment in the commercial sector in reserves until the investment is derecognised.
When these investments are disposed of, the cumulative gains and losses must be cleared and recognised in the operating result. However, the Government had previously cleared the cumulative gains and losses directly to Accumulated Funds within equity.
To comply with Accounting Standards, a total of $6 billion previously reported as a movement in equity at 30 June 2016, has now been corrected to the operating result.
In addition, Accounting Standards only allow gains or losses on its investments to be stored in reserves. In past years, the State recognised all changes in the value of its investment in Available for Sale Reserves, including the capital contributed to establish the State’s investment. In 2016-17, a total of $23.4 billion of contributed capital was corrected to accumulated funds at 1 July 2015.
The State’s budget result was a $5.7 billion surplus, $2.0 billion higher than the budget estimate.
The Total State Sector comprises 310 entities controlled by the NSW Government.
Of the total, the General Government Sector comprises 215 entities that provide goods and services not directly paid for by consumers.
The non-General Government Sector comprises 95 Government businesses that provide goods and services such as water and electricity, or financial services.
A principal measure of a Government’s overall performance is its Net Operating Balance, or Budget Result. The Net Operating Balance reports the difference between the cost of General Government service delivery and the revenue earned to fund these sectors.
The State has recorded budget surpluses and exceeded the original budget result in nine of the last ten years.
The State maintained its AAA credit rating.
The object of the Act is to maintain the AAA credit rating.
NSW’s finances are managed in alignment with the Fiscal Responsibility Act 2012 (the Act).
The Act established the framework for fiscal responsibility and strategy needed to protect the State’s AAA credit rating and service delivery to the people of NSW.
The purpose of maintaining the AAA credit rating is to reduce the cost of, and ensure the broadest access to, borrowings.
A triple-A credit rating also helps maintain business and consumer confidence so economic activity and employment are sustained. The legislation sets out targets and principles for financial management to achieve this.
New South Wales has credit ratings of AAA/Negative from Standard & Poor’s and Aaa/Stable from Moody’s Investors Service.
The fiscal targets for achieving this objective are:
General Government expenditure growth is lower than long term revenue growth.
General Government expenditure growth was 4.2 per cent in 2016-17, below the long-term revenue growth of 5.6 per cent.
Eliminating unfunded superannuation liabilities by 2030.
The Act sets a target of eliminating unfunded defined benefit superannuation liabilities by 2030. The State’s net superannuation liability was $58.6 billion at 30 June 2017 ($71.2 billion at 30 June 2016).
The Government predicts the 2030 target will be achieved. The State’s funding plan is to contribute amounts escalated by five per cent each year so the schemes will be fully funded by 2030. In 2016-17, the State made employer contributions of $1.5 billion, which is largely consistent with contributions over the past five years.
The liability values in the graph below do not reflect the values recorded in the Total State Sector Accounts. For financial reporting purposes, Accounting Standards (AASB 119 Employee Benefits) require the State to discount its superannuation liability using the government bond rate (refer to page 10 of this report).
The relevant government bond rate in the current economic climate is 2.62 per cent.
The State’s target for the unfunded superannuation liability is measured using AASB 1056 Superannuation Entities. This is because it adopts a measurement basis that reflects expected earnings on fund assets, which are currently between 5.9 and 7.4 per cent. Using these rates, the liability is $15.0 billion at 30 June 2017 ($16.1 billion at 30 June 2016). The unfunded liability is $2.4 billion less than when the Act was introduced.
The State’s assets grew by $31.6 billion during 2016-17 to $409 billion.
Valuing the State’s physical assets.
When we audit the financial statements, we focus on areas we consider as higher risk. These areas are often complex, and require the use of estimates and judgements.
The State has $307.2 billion of physical assets measured at fair value in accordance with Australian Accounting Standards. Fair value calculations are inherently complex and sensitive to assumptions and estimates, increasing the risk these assets are incorrectly valued.
In our audits, we assess the reasonableness and appropriateness of assumptions used in valuing physical assets. This includes obtaining an understanding of the valuation methodologies applied and judgements made. We also review the completeness of asset registers, and the mathematical accuracy of valuation models.
Net movements between years includes additions, disposals, depreciation and valuations. This year, valuations of physical assets added $16.2 billion to the State’s assets, comprising:
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Transport for NSW and Railcorp $8.5 billion
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New South Wales Land and Housing Corporation $4.8 billion
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Roads and Maritime Services $930 million
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Crown Entity $400 million.
The State’s financial assets increased $27.5 billion in 2016-17
The State’s financial assets have increased by 88 per cent over the past four years. In 2016-17, financial assets increased primarily due to proceeds from the sale of government assets and businesses.
The Government implemented reforms to better use the State’s financial assets. A key element was the creation of an Asset and Liability Committee (ALCO) to provide advice on ways to improve balance sheet management.
Since the creation of the ALCO, reforms include:
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Establishment of the New South Wales Infrastructure Future Fund (NIFF). The net proceeds from the State’s asset recycling program are invested into the NIFF, which is managed by TCorp, with a balance of $14.6 billion by 30 June 2017. Funds raised are invested through the NIFF until the Government requires them for critical infrastructure projects that are part of the Restart NSW and Rebuilding NSW program of works. ALCO and TCorp provide advice on the NIFF’s performance and management
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Establishment of the Social and Affordable Housing Fund ($1.1 billion at 30 June 2017). ALCO oversees the Fund to ensure an appropriate investment approach that will maintain funding certainty for new social and affordable housing stock
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Cash and liquidity management reforms to centralise cash previously held by agencies in the Treasury Banking System. This reform is designed to ensure agencies have adequate levels of liquidity but with surplus funds invested centrally for better returns.
The State’s liabilities decreased by $13.1 billion during 2016-17 to $182 billion.
Valuing the State’s liabilities relies on an actuarial assessment.
Nearly half of the State’s liabilities relate to its employees. This includes unfunded superannuation, and employee benefits, such as long service and recreation leave.
Valuation of these obligations is subject to complex estimation techniques and significant judgements. Small changes in assumptions can materially impact the financial statements.
We address the risk associated with auditing these balances:
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using actuarial specialists
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testing controls around underlying employee data used in data models, and testing the accuracy of the calculations
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evaluating assumptions applied in calculating employee entitlements such as the discount rate and the probability of long service leave vesting conditions being met.
The State’s superannuation obligations reduced by $12.6 billion in 2016-17.
The State’s $58.6 billion superannuation liability represents obligations for past and present employees, less the value of assets set aside to meet those obligations. The superannuation liability decreased from $71.2 billion to $58.6 billion, largely due to an increase in the discount rate from 1.99 per cent to 2.62 per cent. This alone reduced the liability by $9.2 billion
The State’s borrowings totalled $70.6 billion at 30 June 2017.
The State’s borrowings totalled $70.6 billion at 30 June 2017, $9.5 billion less than the previous year. This was largely due to the repayment of borrowings when the assets of Ausgrid and Endeavour Energy were leased to the private sector.
TCorp issues bonds to raise funds for NSW Government agencies. The bonds are actively traded in financial markets providing price transparency and liquidity to public sector borrowers and institutional investors. All TCorp bonds are guaranteed by the NSW Government.
The Government manages its debt liabilities through its balance sheet management strategy. The strategy extends to TCorp, which applies an active risk management strategy to the Government’s debt portfolio.
General Government Sector debt is being restructured by replacing shorter-term debt with longer-term debt. This lengthens the portfolio to better match liabilities with the funding requirements of infrastructure assets and reduces refinancing risks. It also allows the Government to take advantage of the low interest rate environment.
The State recorded revenue of $83.5 billion in 2016-17, an increase of $5.3 billion from 2015-16.
The State’s results are underpinned by revenue growth in taxation, fees and fines.
Taxation, fees, fines and other revenue comprises $30.5 billion of taxation ($28.7 billion in 2015-16) and $5.3 billion of fees, fines and other revenue ($4.6 billion).
Tax revenue for the Total State Sector increased by $1.8 billion, or 6.4 per cent compared to 2015-16, primarily due to:
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one-off business asset sales and lease transactions, including $718 million in transfer duty from the Ausgrid and Endeavour Energy lease transactions
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$385 million increase in payroll tax from growth in NSW employment and average employee compensation
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a $426 million increase in land taxes.
Growth in stamp duty is expected to slow over the next 4 years.
General Government Sector stamp duties have increased from $6.2 billion in 2012-13 to $11.5 billion in 2016-17, an annual average growth rate of 16.5 per cent. The Government’s budget forecasts the growth in stamp duties to decline, to an average annual growth rate of 2.6 per cent between 2016-17 and 2020-21.
The State received Commonwealth grants and subsidies of $30.8 billion in 2016-17.
The State received $30.8 billion from the Commonwealth Government in 2016-17, $1.6 billion more than in 2015-16. This was primarily due to transaction based asset recycling grants of $1.0 billion and a $720 million increase in national land transport grants. This increase was offset by a $435 million decrease in General Purpose Grants, which mainly comprises New South Wales’ share of the Goods and Services Tax (GST).
The State spent $79.4 billion in 2016-17 to deliver services to the community, an increase of $3.9 billion from 2015-16.
Overall expenses increased 5.2 per cent from last year. Most of the increase was due to higher employee costs and operating costs.
Total salaries and wages increased by 4.2 per cent from 2015-16.
Total salaries and wages increased to $30 billion from $28.8 billion in 2015-16. The Government wages policy aims to limit the growth in remuneration and other employee costs to no more than 2.5 per cent per annum.
Operating expenses increased by 12.4 per cent from 2015-16.
Within operating expenses, payments for supplies, services and other expenses increased, in part, due to the State:
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reacquiring mining licenses worth $482 million and additional land remediation costs of $101 million
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spending more on health including additional drug supplies relating to Hepatitis C.
State spend on transport and communications increased by 68.1 per cent since 2012-13.
While spending on health and education remain the largest functional areas provided by Government, expenditure on transport and communication increased, on average, by 13.9 per cent annually between 2012-13 and 2016-17. This increase reflects the Government’s investment in transport infrastructure such as the Sydney Metro and Westconnex. Over the same period, spending on health increased by $3.9 billion.
Expenditure on fuel and energy has decreased by an average of 44.7 per cent since 2012-13, reflecting the State’s leases of electricity network assets.
In 2011, the Government established Restart NSW to fund high priority infrastructure projects.
Restart NSW projects are primarily funded from the proceeds from the asset recycling program enabling Government to deliver new infrastructure investment.
Restart NSW provides funding for the delivery of Rebuilding NSW, which is the Government’s 10-year plan to invest $20 billion in new infrastructure.
The State finalised long-term leases of Ausgrid and Endeavour Energy assets.
In June 2017, the Government finalised its long-term lease of 50.4 per cent of Endeavour Energy. This transaction follows on from the long-term leases of TransGrid in December 2015 and 50.4 per cent of Ausgrid in December 2016. Net proceeds of $15.0 billion were paid into Restart NSW relating to these transactions.
The Government also finalised an arrangement for the private sector to provide land titling and registry services to the public for 35 years. The State, through Restart NSW, received an upfront payment of $2.6 billion from the new operator.
Restart NSW is funding $29.8 billion of new infrastructure.
The Government has detailed its plan to invest $20 billion into the Rebuilding NSW plan from Restart NSW.
At 30 June 2017, around $2.9 billion has already been spent on Rebuilding NSW projects from Restart NSW, with a further $9 billion included in the budget aggregates. The Government has also earmarked a further $8.1 billion in Restart NSW for future projects.
The most significant project is the Sydney Metro. The Government has committed $7.0 billion from Restart NSW to build a 30-kilometre metro line, linking Sydney Metro Northwest at Chatswood, through new stations in the lower North Shore, the Sydney CBD and southwest to Bankstown. At 30 June 2017, $2.4 billion has been spent on this project from Restart NSW.
Other significant projects funded by Restart NSW include a $1.8 billion contribution to WestConnex and reserved funding of $1 billion towards the State’s Major Stadia Network program.
The Treasury initiated the Financial Management Transformation (FMT) program with the aim of changing and improving financial governance, budgeting and reporting arrangements of the New South Wales public sector.
FMT aims to deliver better outcomes for the people of New South Wales and focuses on transparency and accountability for expenditure, and better value for money.
New Financial Management System
PRIME is the Information Technology (IT) solution component of the FMT program, replacing several historical systems. PRIME will provide both financial and performance information within one IT platform for all agencies in the NSW public sector.
It is expected to give Government more timely information to plan and deliver its policy priorities and the budget.
Independent assurance over the budget process would improve confidence in the reliability of the State’s financial information.
Actions for Energy rebates for low income households
Energy rebates for low income households
The Department of Planning and Environment provides more than $245 million in energy rebates to around 27 percent of NSW households. This report highlights that the department is not monitoring the rebate schemes to understand whether they are delivering the best outcomes.
Most rebates are ongoing payments applied directly to energy bills reducing the amount payable by the householder. The structure of these rebates is complex and can be inequitable. Some households are eligible for four different rebates, each with its own eligibility criteria. Also, some households in very similar circumstances receive different levels of support depending on what type of energy is used in their home or which adult in the house is the energy account holder. For example, a household using both electricity and gas receives more assistance than a household with electricity alone even if total energy bills are the same.
By September 2018, the Department of Planning and Environment should:
- Ensure effective strategies are in place to make information about rebates available to all eligible, low-income households
- Evaluate alternative models and develop advice for government to reduce complexity and improve equity of ongoing rebates
- Establish measurable objectives for schemes that provide ongoing support, and monitor and measure performance of all schemes against objectives and outcome measures
- Assess the impacts of the forecast increase in embedded networks and develop strategies to manage any increased administrative risk
- Strengthen assurance that EAPA is being provided in accordance with its objectives and guidelines by implementing accreditation and compliance programs
- Ensure those eligible for EAPA financial support are not disadvantaged by inflexible payments, inconsistent provider practices, or inability to access an EAPA provider in a timely manner. Options include:
- moving from a fixed-value voucher to a flexible payment based on need irrespective of energy type
- establishing a ‘Provider of Last Resort’ facility for households that cannot access an EAPA Provider.
Parliamentary reference - Report number #292 - released 19 September 2017
Actions for 2016 - An overview
2016 - An overview
This report focuses on key observations and findings from 2016 audits and highlights key areas of focus for financial and performance audits in 2017.
Financial reporting | |
Observation | Conclusion |
Only one qualified audit opinion was issued on the 2015–16 financial statements of NSW public sector agencies, compared to two in 2014–15. | The quality of financial reporting continued to improve across the NSW public sector. |
More 2015–16 financial statements and audit opinions were signed within three months of the year end. | Timely financial reporting was facilitated by more agencies resolving significant accounting issues early, completing asset valuations on time and compiling sufficient evidence to support financial statement balances. |
NSW Treasury’s early close procedures in 2015–16 were again successful in improving the quality and timeliness of financial reporting, largely facilitated by the early resolution of accounting issues. For 2016–17, NSW Treasury has narrowed the scope of mandatory early close procedures. |
The narrowed scope of mandatory early close procedures may diminish the good performance in ensuring the quality and timeliness of financial reporting achieved in recent years. To mitigate this risk, NSW Treasury has mandated that agencies perform non-financial asset valuations and prepare proforma financial statements in their early close procedures. It also encourages them to continue with the good practices embedded in recent years. |
Although most agencies complied with NSW Treasury’s early close asset revaluation procedures we identified areas where they can improve. | Asset revaluations need to commence early enough to ensure all assets are identified and the results are analysed, recorded and reflected accurately in the early close financial statements. |
Number of misstatements | |||||
Year ended 30 June | 2015-16 | 2014-15 | 2013-14 | 2012-13 | 2011-12 |
Total reported misstatements | 298 | 396 | 459 | 661 | 1,077 |
All material misstatements identified by agencies and audit teams were corrected before the financial statements and audit opinions were signed. A material misstatement relates to an incorrect amount, classification, presentation or disclosure in the financial statements that could reasonably be expected to influence the economic decisions of users.
Significant matters reported to the portfolio Minister, Treasurer and Agency Head
In 2015–16, we reported the following significant matters to the portfolio Minister, Treasurer and agency head in our Statutory Audit Reports:
Appropriate financial controls help ensure the efficient and effective use of resources and the implementation and administration of agency policies. They are essential for quality and timely decision making.
In 2015–16, our audit teams made the following key observations on the financial controls of NSW public sector agencies.
Financial controls | |
Observation | Conclusion |
More needs to be done to implement audit recommendations on a timely basis. We found 212 internal control issues identified in previous audits had not been adequately addressed by 30 June 2016. |
Delays in implementing audit recommendations can impact the quality of financial information and the effectiveness of decision making. Agencies need to ensure they have action plans, timeframes and assigned responsibilities to address recommendations in a timely manner. |
Agencies continue to face challenges managing information security. Most information technology issues we identified related to poor IT user administration in areas like password controls and inappropriate access. | Agencies should review the design and effectiveness of information security controls to ensure data is adequately protected. |
We found shared service provider agreements did not always adequately address information security requirements. |
Where agencies use shared service providers they should consider whether the service level arrangements adequately address information security. |
Thirteen of 108 agencies required to attest to having a minimum set of information security controls did not do so in their 2015 annual reports. | The 'NSW Government Digital Information Security Policy' recognises the growing need for effective information security. With cyber security threats continuing to increase as digital services expand we plan to look at cyber security as part of our 2017–18 performance audit program. |
We identified instances where service level agreements with shared service providers were outdated, signed too late or did not exist. | Corporate and shared service arrangements are more effective when service level arrangements are negotiated and signed in time, clearly detail rights and responsibilities and include meaningful KPIs, fee arrangements and dispute resolution processes. |
Internal controls at GovConnect, the private sector provider of transactional and information technology services to many NSW public sector agencies were ineffective in 2015–16. We found mitigating actions taken to manage transition risks from ServiceFirst to GovConnect were ineffective in ensuring effective control over client transactions and data. | The Department of Finance, Services and Innovation should ensure GovConnect addresses the control deficiencies. It should also examine the breakdowns in the transition of the shared service arrangements and apply the learnings to other services being transitioned to the private sector. |
Maintenance backlogs exist in several NSW public sector agencies, including Roads and Maritime Services, Sydney Trains, NSW Health, the Department of Education and the Department of Justice. | To address backlog maintenance it is important for agencies to have asset lifecycle planning strategies that ensure newly built and existing assets are funded and maintained to a desired service level. |
Actions for Assessing major development applications
Assessing major development applications
The Planning Assessment Commission (the Commission) has improved its decision-making processes for major development applications in recent years. The Commission has improved how it consults the public and manages conflicts of interest, and now also publishes records of its meetings with applicants and stakeholders.
The Planning Assessment Commission (the Commission) is an independent body established in 2008 under the Environmental Planning and Assessment Act 1979 (the EP&A Act). It makes decisions on major development applications in New South Wales. Along with the Department of Planning and Environment (the Department) and the Land and Environment Court, it is one of three bodies that have a role in making decisions on these applications.
The Department refers development applications to the Commission where 25 or more objections have been received from the community, a local council objects to the proposal, or the applicant has donated to a political party.
These applications are often complex and controversial, and can attract a high level of public interest. This may mean that, regardless of the process, not all stakeholders are satisfied with the outcome.
The Commission is required to take into account section 79C of the EP&A Act when making decisions. Section 79C includes consideration of the likely environmental, social and economic impacts of the development.
This audit assessed the extent to which the Commission’s decisions on major development applications are made in a consistent and transparent manner. To assist us in making this assessment, we asked whether the Commission:
- has sound processes in place to help it make decisions on major development applications that are informed and made in a consistent manner
- ensures its decisions are free from bias and transparent to stakeholders and the public.
Conclusion
Over the last two years, the Commission has improved its decision-making process. It has improved how it consults the public and manages conflicts of interest, and now also publishes records of its meetings with applicants and stakeholders.
However, there are still some vital issues to be addressed to ensure it makes decisions in a consistent and transparent manner. Most importantly, the Commission was not able to show in every decision we reviewed how it met its statutory obligation to consider the matters in section 79C of the EP&A Act.
Despite improved probity measures put in place by the Commission, there is a perception among some stakeholders that it is not independent of the Department. The reasons for some of these concerns are outside of the Commission’s control. For example, the Commission becomes involved after the Department has prepared an assessment report which recommends whether a development should proceed. This creates the perception that the Commission is acting on the recommendation of the Department. The Department’s assessment report should state whether an application meets relevant legislative and policy requirements, but not recommend whether a development should be approved or not.
More can also be done to improve transparency in decision-making and the public’s perception of the independence of Commissioners. The Commission should continue to improve how it communicates the reasons for its decisions and also publish on its website a summary of Commissioners’ conflict of interest declarations for each development application.
Decision-making processes have improved but some key aspects need to be addressed
Although not articulated in one document, there is a framework in place to assist Commissioners make decisions on major development applications. This includes setting out the information to be considered, who to consult, and that a report is to be prepared. The Commission has recently improved how it conducts public meetings and the level of support provided to Commissioners to ensure they understand the decision-making process. The Commissioners we interviewed all showed a good understanding of their role.
As a consent authority, the Commission is required to consider the matters in section 79C of the EP&A Act when making a decision. However, it was not able to show how it met this requirement in every decision we reviewed. We found some evidence of these considerations in six of the nine cases we reviewed, for example in meeting notes or in its report on a decision. Of these six cases, the degree to which the Commission considered all matters under section 79C varied considerably. The larger, more complex applications were more likely to address these considerations. To demonstrate compliance with the EP&A Act, the Commission must be able to show how it considers all matters in section 79C for each decision it makes.
We found that the Commission has access to relevant information to make a decision and consults stakeholders for their views of the development. The level of consultation depends on the size and complexity of an application. If Commissioners decide they need more information to make a decision, they consult local councils, the community, other government agencies and experts as needed.
The Commission’s public meetings are a valuable part of the decision-making process, where new perspectives or issues are often raised. However, some aspects could be improved. For example, many stakeholders thought the five minutes allowed for individual speakers was insufficient. The Commission could be more flexible with this timeframe. Identifying new ways to notify the public of its meetings, other than advertisements on its website and in newspapers, would also ensure it reaches as many interested parties as possible.
Improved transparency and probity but the Commission is not seen by some as impartial
The Commission has sound processes in place to ensure that its decisions are impartial and transparent to the community. It has improved its probity measures over the last two years, following a review by the NSW Ombudsman in 2014. We found that the Commission:
- has probity policies and procedures which are available on its website
- has improved its record keeping of some processes, such as meetings with applicants and stakeholders
- publishes its decision and supporting documentation, such as meeting notes, on its website.
Conflicts of interest are a significant risk for the Commission because they could lead to corruption, abuse of public office, and affect the public’s view of its independence. The Commission manages this risk well. It has a policy in place to address potential, perceived or actual conflicts. Commissioners update their conflicts of interest records annually, and declare any conflicts when the Commission assigns them to a development application. Unlike the Commission’s probity polices, Commissioners’ conflict of interest declarations are not available on its website. Providing a summary of this information on its website when Commissioners are allocated to a development application would further improve transparency around conflicts of interest.
The Commission has been improving how it communicates its decisions to the public. It now produces fact sheets for its decisions on matters that attract a high level of public interest. Its reports on decisions for complex applications also discuss issues raised by the community. However, the level of detail varied in the decisions we reviewed, and it was not always clear how conditions placed on a development would resolve identified issues. Similarly, the reports did not clearly address the matters under section 79C of the EP&A Act. Reporting this would further improve the transparency of its decisions, and clearly demonstrate compliance with the EP&A Act.
While we did not find any issues that would make us question the integrity or independence of Commissioners, there remains a perception among some stakeholders that the Commission is not impartial. Some of these concerns are within the Commission’s control to fix, such as allowing individual speakers at public meetings extra time to discuss their issues, therefore avoiding perceptions of bias.
Other perceptions, such as the Commission being part of the Department and not an independent decision making authority, are outside the Commission’s immediate control. For example, the Commission receives applications at the end of the assessment process, after the Department has prepared an assessment report recommending whether the application should be approved. This means there are effectively two reports on an application; the Department’s assessment report and the Commission’s report on its decision. However, there is only one decision-maker: the Commission. This may cause community confusion about the roles of the Department and the Commission in the decision-making process. Clearer separation of their roles in assessing applications and preparing reports is needed.
To minimise the perception that the Commission is simply ‘rubber stamping’ the Department’s recommendations, assessment reports should not recommend whether or not a project be approved. Instead, they should provide the Department’s views on whether a project meets relevant legislative and policy requirements. The Commission should also be involved earlier in the process, so it can establish key facts and identify relevant issues sooner. It should request that the Department’s assessment report covers matters Commissioners consider particularly important when assessing projects under section 79C. Earlier referral of applications should also help the Commission to plan its work in assessing applications, and may reduce the time taken to reach a decision.
Unless these issues are addressed, stakeholders will continue to believe the Commission does not act in a transparent and impartial manner, which could erode public confidence in the Commission.
The Planning Assessment Commission
The Planning Assessment Commission (the Commission) is a planning authority established in 2008 under the Environmental Planning and Assessment Act 1979 (the EP&A Act). One of its functions is to make decisions on major development applications.
The Commission is independent of the Department of Planning and Environment (the Department) and the Minister for Planning. This means its decisions are not subject to the direction or control of the Department or the Minister.
The Department refers applications for major development to the Commission, including state significant development and infrastructure applications. These projects are generally initiated by the private sector. Applications are referred to the Commission when one or more of the following criteria are met:
- more than 25 objections are received about the proposal
- the local council objects to the proposal
- the applicant has donated $1,000 or more to a political party or member of parliament.
These applications are often controversial and may attract a high level of public interest. Of the 29 development applications the Commission received in 2015–16, almost 40 per cent were in the mining and energy sectors, and another 40 per cent related to urban development.
Section 79C of the EP&A Act outlines the matters the Commission must consider when making decisions about major development applications. These include:
- any relevant environmental and planning instruments
- likely environmental, social and economic impacts of the development
- suitability of the site for the development
- submissions received about the application
- the public interest.
In addition to making decisions about major development applications, the Commission also reviews major developments as part of the planning process, and provides independent expert advice to the government on planning and development matters. Since the Commission’s inception, it has provided advice on 76 matters, conducted 39 reviews, and made 444 decisions on development applications.
Process for approving major development applications
The Commission is one of three bodies that have a role in the planning and approval process for major development applications in New South Wales, as seen in Exhibit 1. The other two bodies are the Department of Planning and Environment, and the Land and Environment Court.
The Department determines the outcomes of major development applications. When an application meets one of the criteria listed above, it refers these to the Commission to make the decision. In certain circumstances, the Land and Environment Court hears appeals against decisions made by either the Department or the Commission.
A Memorandum of Understanding between the Commission and the Department sets out timeframes the Commission must meet when making a decision, specifically:
- two weeks where no stakeholder meetings are required
- three weeks where stakeholder meetings are required
- six weeks when a public meeting is required.
Parliamentary reference - Report number #279 - released 19 January 2017
Actions for Planning and Environment 2016
Planning and Environment 2016
Auditor-General, Margaret Crawford released a report on the planning and environment cluster today, concluding that the quality of financial reporting is improving. However, the cluster can improve its financial controls and governance framework.